There has been a record jump in the number of UK businesses in critical financial distress, according to insolvency specialists.
Businesses most concerned include those in hospitality, leisure and retail, but the construction industry is also facing challenges.
Bankruptcy experts Begbies Traynor said a company could be considered to be in critical financial distress if it had an outstanding circuit court judgment of more than £5,000 or faced a winding-up petition.
The struggles for businesses come at the same time as a drop in consumer confidence, with more people worried about the UK’s financial prospects, as well as their own.
While there is often a year-end spike in companies in critical financial distress, the report found a sharp increase of 50% from September to December last year, taking the number of businesses in this category to 46,583. The record jump, since Begbies Traynor began collecting such data in 2004, was up from 31,201 three months earlier.
One factor was HMRC becoming more aggressive in recovering back taxes owed.
The number of UK businesses deemed to be in significant financial distress meanwhile rose by 3.5% in the quarter to 654,765.
Ric Traynor, executive chairman of Begbies Traynor, said the figures showed it was “clear that many distressed UK businesses are finding it almost impossible to navigate the challenges they face as we enter 2025”.
“For many businesses already dealing with weak consumer confidence and higher borrowing costs, the rise in national insurance contributions and the national minimum wage announced in the last budget could be the last straw,” he added.
He said sectors such as retail and hospitality could be particularly affected because they typically “operate on the razor’s edge”.
Business is set to bear the brunt of tax rises that come into effect in April, with increases in the national insurance rate and a cut in the threshold for employers.
Firms have warned that the extra costs could affect UK economic growth – the government’s main goal – with employers expecting to have less money to give pay rises and create new jobs.
Lloyds Bank, the UK’s biggest lender, released research this week suggesting business confidence had “diminished further”, with rising costs for firms to slow activity this year.
“I fear that 2025 could end up being a watershed moment where thousands of UK businesses call time” after struggling to survive for years, said Mr Traynor.
As a result of rising costs, Helen Gorman decided to close her cafe bar Twentysix in Cardiff this month.
“The last couple of years have been really quite stressful trying to run a business,” she told the BBC.
“The industry as a whole is terrible and some of these challenges I don’t think any government really understands, especially around the VAT rates we pay. The costs just keep going up, whether it’s supplier costs, whether it’s energy costs .”
Julie Palmer, regional managing partner at Begbies Traynor, said there was a “sense of business fatigue” after years of cost overruns.
“There seems to be nowhere to go, it’s getting harder and harder, the costs are going up, they can’t be passed on to consumers who aren’t spending anyway,” she said.
A separate report showed a slight drop in confidence among consumers in their finances and a sharper outlook for the broader economy.
The long-running survey by GFK showed that people’s intentions to spend on big-ticket items fell as the number of people considering putting money away in savings savings.
GFK said it was a negative for the economy as it was a sign that many people saw dark days ahead and were putting money away for safety.
Neil Bellamy, director of Consumer Insights at GFK, said: “The New Year is traditionally a time for change, but looking at these figures, consumers don’t think things are changing for the better.
“These figures highlight that consumers are losing confidence in the UK’s economic prospects.”
Ms Palmer said it was difficult to see “any or many green shoots on the horizon”.
“The energy crisis settled last year – it’s starting to rear its ugly head again, probably with utilities making a lot of noise about how much their water bills need to rise if they’re going to avoid facing bankruptcy ,” she added.